Do We Need A Hedge Fund Shadow NAV in 2018?

Are hedge funds throwing away thousands of dollars by insisting on duplicating the fund accounting function? One of the key responsibilities of the fund administrator is to calculate the fund net asset valuation, the official NAV. Surely they can get that right, right?

So what is the shadow NAV?

The shadow NAV is the NAV calculation completed in order to verify the official NAV.  It could be completed by the hedge fund manager or it could be outsourced to a specialist service provider.  Indeed, the fund could appoint a second fund administrator to calculate the shadow NAV.

Scope of the shadow NAV

Most administrators are familiar with the manner in which the hedge fund manager will agree the official NAV before publication.  What is the nature of the process used by the manager?  Is it verification or validation?  Is the manager replicating full accounting or merely ensuring that the NAV is within a level of tolerance, within a certain number of basis points of the manager’s estimated NAV.  It depends.  There is no one-size fits-all.

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